What Is IRS Form 8606? Pro-Rata Rule and Backdoor Roth

IRS Form 8606 is the tax form that tracks after-tax money inside your individual retirement accounts so the same dollars aren’t taxed twice. You file it any year you make a nondeductible contribution to a traditional IRA, convert traditional IRA money to a Roth, or take a distribution from an IRA that holds a mix of pre-tax and after-tax funds. Without this form on file, the IRS treats every dollar leaving your traditional IRA as fully taxable, even the portion you already paid income tax on before it went in.¹

When You Have to File It

The most common trigger is making a nondeductible contribution to a traditional IRA. This happens when your income is too high to claim the deduction because you or your spouse has access to a workplace retirement plan. The tax code requires you to report the nondeductible amount so the IRS has a record of which portion of your IRA balance has already been taxed.²

Converting funds from a traditional, SEP, or SIMPLE IRA into a Roth IRA also requires filing. The conversion counts as a distribution for tax purposes, and Form 8606 figures out how much of it is taxable based on any after-tax basis you have.³

Distributions from a traditional IRA that contains any nondeductible money trigger the form as well. So do distributions from an inherited traditional IRA that carries a basis, non-qualified distributions from a Roth IRA, and certain IRA transfers between spouses under a divorce decree that shift basis from one person to the other.⁴

The Three Parts of the Form

Part I: Nondeductible Contributions and Traditional IRA Distributions

Part I tracks your cumulative after-tax basis in traditional IRAs. Line 1 is this year’s nondeductible contribution. Line 2 is your total basis from prior years, taken from Line 14 of the last Form 8606 you filed. If you took a distribution or made a conversion during the year, Lines 6 through 13 apply the pro-rata calculation, using the total fair market value of all your traditional, SEP, and SIMPLE IRAs as of December 31. Line 14 is the running total of remaining basis that carries forward to next year’s form.⁴

Your December 31 IRA value comes from Form 5498, which your financial institution typically mails by late January or early February.⁵

Part II: Roth Conversions

Part II handles conversions from a traditional, SEP, or SIMPLE IRA to a Roth. The net conversion amount goes on Line 8. The form subtracts the portion attributable to your after-tax basis (calculated in Part I) to arrive at the taxable amount, which flows to your Form 1040 as income.⁴

Each conversion starts its own five-year clock, beginning January 1 of the conversion year. If you pull converted money out of the Roth before that clock runs and you’re under 59½, a 10% early distribution penalty applies. Part II feeds the tracking that determines whether a later Roth withdrawal is penalized.⁶

Part III: Non-Qualified Roth Distributions

Part III determines whether a distribution from a Roth IRA is taxable. Qualified Roth distributions are tax-free and don’t require Part III at all. You only complete this section for non-qualified distributions, such as withdrawals taken before 59½ or before the account meets its five-year holding period. The form applies an ordering rule: distributions come first from regular contributions (always tax-free and penalty-free), then from converted amounts (tax-free but potentially penalized within the five-year window if you’re under 59½), and finally from earnings (taxable and potentially penalized).⁴

The Pro-Rata Rule

You can’t pick which dollars come out of your IRA. Federal law treats all of your traditional, SEP, and SIMPLE IRAs as a single pool when calculating the tax hit on any distribution or conversion.⁷

Every dollar you take out carries a proportional slice of pre-tax and after-tax money. Say you have $90,000 of pre-tax funds across your traditional IRAs and $10,000 of after-tax basis. Total balance: $100,000. Every distribution is 90% taxable and 10% tax-free, no matter which specific account you draw from. Emptying the account that only holds your nondeductible contributions doesn’t produce a tax-free withdrawal.

The rule applies to each spouse individually. Your calculation uses only your IRAs; your spouse calculates theirs separately.

The Backdoor Roth

Form 8606 is central to the backdoor Roth IRA, a two-step approach used by people whose income exceeds the direct Roth contribution limits. You make a nondeductible contribution to a traditional IRA (up to $7,000 in 2025, or $8,000 if you’re 50 or older), then convert that money to a Roth.⁸

Both steps get reported on the same Form 8606: the contribution on Line 1 in Part I and the conversion on Line 8 in Part II. When the conversion happens quickly, with little or no growth in the account, almost all of the converted amount is basis, so little or nothing is taxable.⁴

The pro-rata rule can break this strategy. Suppose you make a $7,000 nondeductible contribution and convert it, but you also have $93,000 of pre-tax money sitting in a rollover IRA from an old employer. Your total IRA balance is $100,000, and only $7,000 of that is after-tax. The conversion is treated as 93% taxable. You owe income tax on roughly $6,510 of the $7,000 you moved. To avoid this, some people first roll their pre-tax IRA money into a current employer’s 401(k), which removes it from the pro-rata calculation.

Inherited IRAs, Divorce, and Charitable Distributions

If you inherited a traditional IRA that holds after-tax basis, you file Form 8606 when you take distributions from it. The inherited basis reduces the taxable portion of your distributions the same way it did for the original owner. You may need a separate Form 8606 for each inherited IRA alongside the one covering your own accounts. The remaining basis appears on Line 14 of the deceased person’s most recent Form 8606. If they made nondeductible contributions but never filed the form, the basis still exists, but proving it becomes your job.⁴

Transferring an IRA to a former spouse under a divorce decree isn’t a taxable event, but it can shift after-tax basis between the two of you. When that happens, both spouses file Form 8606, adjust their basis on Line 2, and attach a statement describing the character of the transferred amounts and identifying the other spouse.⁴

Qualified charitable distributions work differently. If you’re 70½ or older and make a QCD directly from your IRA to a charity, those amounts are excluded from the distribution lines on Form 8606 (Line 7 in Part I, Line 19 in Part III). Because QCDs bypass the pro-rata calculation entirely, they don’t reduce your nondeductible basis, which stays intact for future non-charitable withdrawals.⁴

How and When to File

Form 8606 gets filed with your Form 1040, 1040-SR, or 1040-NR by the regular tax deadline, including extensions. If you and your spouse both need to file it, each of you submits a separate copy with only one spouse’s name and Social Security number on it.⁴

If your income is low enough that you don’t otherwise have to file a return but you made nondeductible IRA contributions, you still need to submit Form 8606. In that case it goes in on its own, signed and mailed to the address in the form’s instructions.

Penalties and Fixing a Missed Year

Failing to file Form 8606 when required carries a $50 penalty. Overstating your nondeductible contributions triggers a $100 penalty. Both can be waived if you show reasonable cause.⁹

The dollar penalties are small; the real cost of not filing is much larger. Without a filed record of your nondeductible contributions, you have no official proof of your basis. When you eventually take distributions in retirement, every dollar comes out fully taxable. On a $50,000 basis built up over decades, that could mean $12,000 or more in federal income tax on money you already paid tax on once.

If you missed filing for a prior year, you can file Form 8606 retroactively using the version of the form for that specific tax year. If you need to change a contribution from deductible to nondeductible or the other way, submit an amended return on Form 1040-X with a corrected Form 8606 attached.⁴

Keep Every Copy

The IRS does not reliably track your IRA basis for you. That job is yours, and it can span 30 or 40 years between your first nondeductible contribution and your last retirement distribution. Keep a copy of every Form 8606 you file, along with the Form 5498s showing your year-end account values and contributions. Line 2 of every future Form 8606 depends on the number from the previous one, and losing track of your basis doesn’t mean the IRS forgives it. It means you lose the benefit of it.

1
Internal Revenue Service. Topic No. 451, Individual Retirement Arrangements (IRAs)
2
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts – Section (o)(4)
3
eCFR. 26 CFR 1.408A-4 – Converting Amounts to Roth IRAs
4
Internal Revenue Service. Instructions for Form 8606 (2025)
5
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025) – Section: Specific Instructions for Form 5498
6
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs – Section (d)(3)
7
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts – Section (d)(2)
8
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
9
Office of the Law Revision Counsel. 26 USC 6693 – Failure to Provide Reports on Certain Tax-Favored Accounts or Annuities